While disappointing second-quarter results have led to more downgrades than upgrades in earnings and target prices, Singapore equities have already priced in a growth slowdown.
Still, if the situation in Europe deteriorates, there is a downside risk of 20-25 per cent from current levels.
Hence, dividend plays are a better bet than robust earnings growth for the rest of 2012, analysts say.
According to private bank Coutts & Co, Singapore equity valuations have reached the lows seen in September last year, when the debt crisis in Europe nearly came to a boil amid public backlash over austerity measures in Italy and Greece, and predictions of an economic standstill by the European Commission.
"However, the uncertainty surrounding the developments in Europe will continue to pose downside risks to equities, especially if the situation develops into a full-blown crisis," Coutts wrote in a note.
Taking the MSCI Singapore index value during the great financial crisis as an indication, the market could fall 20 to 25 per cent more before it reaches the bottom, it added.
Meanwhile, the upside opportunities are low, with analysts predicting the Straits Times Index to rise only slightly from 3,032.8 to reach 3,200 according to DBS estimates, or 3,168 according to DMG.
In the second half of 2012, "mid-September could turn out to be an eventful period", DBS analyst Yeo Kee Yan said in a report.
In the eurozone, the European Central Bank intervention for the bond market will start in September, if troubled countries make a request to activate it.
On Sept 12, the German constitutional court will rule whether Germany can legally ratify the European Stability Mechanism, the new European bailout fund.
In the United States, the committee of the Federal Reserve that determines key interest rates and money supply directions - the Federal Open Market Committee - will meet on Sept 13 to decide whether there will be another round of quantitative easing or QE3.
In Asia, easing inflation pressures will give central banks more flexibility to finetune policies, Mr Yeo of DBS wrote.
The uncertain economic outlook ahead has led analysts to advocate for safe havens in Reits and telecoms stocks.
Among the former, retail Reits are preferred by Coutts as they are able to benefit from tourist arrivals. Healthcare and industrial Reits enjoy stable rental flows with longer leases, Coutts said.
Within the telecoms sector, recent moves by SingTel to rebundle its mobile plans are likely to be followed by other operators, paving the way for a more rational data pricing environment which will underpin better cash flows, said Coutts.
For cyclical stocks, the offshore marine sector is widely expected to outperform, due to strong order books.
While the order bonanza will flow through to smaller mid-caps, Keppel Corp is the top pick for DMG with its confirmation of billion-dollar rig orders from Sete Brasil and its relatively undervalued counter.
Get The Business Times for more stories.